Selling software today is about maximizing the distribution potential of a product. MongoDB pioneered this strategy: When it went public in 2017, the company showcased the power of its community by reporting in SEC filings that its product had been downloaded 30 million times and was being used by over 4,300 customers. This represented a conversion rate of less than 1%, yet the company was still generating over $100 million in revenue.
Much of this success was driven by Mongo’s open-source community. While the business value of open-source communities can sometimes be difficult to measure and quantify, in Mongo’s case, it only took a small percentage of users to convert to paying customers to build an enduring business.
What we have learned after years of working with and analyzing other companies selling similar, open-source products is that monetizing them isn’t always easy or intuitive—despite their large communities–given the lack of detailed visibility into usage. That said, there are measurable intent and activity signals within open-source communities that can indicate if a community is maturing and whether top-of-funnel prospects, plus the introduction of a cloud-native or SaaS product alongside an open-source project, could be used to drive frictionless conversion from free to paying users. Open-source companies leveraging some of the highest-profile open-source projects, including MongoDB, Databricks*, InfluxData*, Confluent*, Cypress*, Auth0 and Snyk, have shown that an active open-source community can drive massive top-of-funnel prospects—and a SaaS product can provide a solid mechanism for frictionless monetization. But you need both to drive an effective community-led, go-to-market motion.
In this, the last installment in our Cloud-Native Entrepreneur’s Playbook series, we explore how user engagement around a company’s community can lead to a better free-to-paid conversion experience; top-of-funnel lead generation; and a culture of collaborative product feedback.
How did we get here?
Historically, B2B tech marketing has been focused on identifying sales leads. Here, “leads” meant a company, enterprise, or singular entity. The traditional marketing funnel went something like this: MQLs (marketing qualified leads) -> SAL (sales accepted leads) -> SQL (sales qualified leads). To make it to the bottom of the funnel, where the sales handoff would happen, someone would typically need to confirm that a lead had budget, decision-making authority, a specific need for a product and a timeline or open RFP (request for proposal). This was the standard playbook for building top-of-funnel activity and pipeline, and it’s dictated much of what enterprise selling is today.
Companies with cloud-native or SaaS offerings, such as Datadog*, Twilio, Snowflake and JFrog*, changed the paradigm of how software was sold. They led with product and from the individual user first—a bottoms-up, instead of top-down, adoption and sales process within a customer organization. With these methods, heuristics around product usage and behavior, self-service and virality became ways to identify prospects and reduce friction in the sales process. Atlassian pioneered this approach, but the above-mentioned companies soon followed suit and built large businesses by using their cloud-native offerings to convert free users to paying customers.
Then, open-source companies took this product-first approach a step further. The open-source movement put a spotlight on the importance of engaged user communities, and how those communities could serve as on-ramps to bottoms-up sales to their accompanying SaaS offering. MongoDB’s used its cloud-native Atlas product to turn free users to paying customers. Companies such as Databricks* and Confluent*, which led with open-source Spark and Kafka technologies, respectively, and InfluxData*, which relies on open-source InfluxDB technology, followed suit.
Understanding this community-led motion and the intersection between community users and commercial users has been difficult to quantify for many companies. But we believe there are ways to measure the health of community engagement that are strong indicators for future, product-led sales.
Community-led engagement models
Communities are living, breathing organisms that open-source companies need to nurture. At the heart of a community is engagement, and we believe community engagement follows five stages, which companies should closely track: intent, actions, activations, monetization, and retention. There is no one metric to measure community engagement, but within these stages there are a series of metrics that best align a company to its users. Below are examples of trackable metrics across our defined community-engagement stages.
- Intent: GitHub stars, GitHub watchers, website visits, web traffic, documentation page views, and relative monthly growth.
- Action: Downloads, user sign-ups, registrations, contributors and contributions, issues created, pull requests created, community signups in Slack or Discord.
- Activation: Activated accounts, tests run, resources managed, token usage, verified users who take an “action” in an account.
- Monetization: Paying users or organizations, number of inbound leads in pipeline vs. outbound, number of self-serve sales, rate of sales cycles.
- Retention: Active users to monthly active users, DAU/MAU, user activity in an application, expansion of key actions (tests, node usage, resources provisioned, etc.), number of activated users within a single organization/domain name, speed to pricing-tier upgrade, customer retention and net-dollar retention.
Like many funnel-conversion metrics, the key to a healthy community is how these metrics manifest themselves in actions that move the needle for a company. Growth in intent metrics without downstream impact to activations and monetization, for instance, can indicate that there is enough value from an open-source or free-usage tier that users are not inclined to go through the commercialization flow. On the contrary, lack of community growth indicates weak top-of-funnel activity that can lead to demand and pipeline issues down the line.
We believe measuring movement through this funnel is the single-biggest indicator of the rate of community engagement to adoption. Relative growth within these stages, and an increase in conversion through them, are strong indicators that the community-commercialization funnel is working. In fact, MongoDB has grown its community from 30 million downloads at the time of its IPO to 130 million downloads today, for a 60%+ CAGR. This is roughly the same pace at which the company has grown revenue over the same period, indicating a strong relationship between top-of-funnel intent in an open-source community and free-to-paid user conversion. Mongo did this by activating users via its cloud-hosted Atlas product.
From community to commercialization
Tying community activity to commercialization is difficult. GitHub stars do not equal users. New Slack members do not equal customers. These metrics all indicate customer intent and action and are all signals of interest in a product. But while community-created issues or pull requests can signal stability for a product or project, they don’t immediately translate to paying customers. We believe that product usage is the strongest signal of purchasing intent.
Moving users through the community funnel from intent to activation should be priority one to grow top-of-funnel prospects. From there, product-usage metrics are critical in identifying the tipping points that will convert a user from community to commercialization. This sales motion is delicate, though, as technical users do not want to talk to salespeople; they want frictionless experiences, enterprise features or technical support.
We have seen three strategies be successful here:
- Creating call-to-actions at different points within the product that invite people to engage with support, invite new users, or take an action that takes them to a paying tier of the product. Open-source and modern infrastructure-as-code provider Pulumi, as an example, has automated its approach to driving funnel conversion by authenticating users early in the onboarding process and driving calls to action when individual developers share projects or invite other team members.
- Setting usage limits gated by a paywall based on the specific value metric typically tied to pricing. This can include the number of resources, tests run, messages, nodes provisioned, etc. Snyk, the open-source developer security solution, limits the number of vulnerability tests or scans a developer can run on its platform and gates automated remediation actions behind its paywall.
- Creating upgrade paths that prompt users to convert to a paying tier for access to gated features or functionality. This could include log history, backup functionality, reporting, access to integrations, etc. MongoDB offers its Atlas product free up to 512MB storage with natural, consumption-based upgrade paths for additional storage and enterprise features such as dedicated clusters, data retention, and recovery functionality.
In all three cases, it is more important to understand how users are engaging with the product than which commercialization strategy to employ. Product usage will dictate the path to commercialization.
Collaborative Product Feedback
One of the least talked-about aspects of community-led growth is the ability to build your company in the open with customers. Building with your community, whether open-sourced or not, is about access to feedback. By engaging with your community for feedback, you are also helping them better understand the value of your product. The best companies welcome users filing reports of bugs and issues. While these are great signals for growing purchasing intent, you should prioritize requests that align to your product roadmap. Development time is split between issues or product. Work with your community on feedback that solves for both.
While there is no silver bullet to building a community-led, go-to-market engine, we believe understanding engagement around a company’s community can lead to a better free-to-paid conversion experience; top-of-funnel lead generation; and a culture of collaborative product feedback.
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*Denotes a past or present Battery portfolio company. For a full list of all Battery investments, please click here. No assumptions should be made that any investments identified above were or will be profitable. It should not be assumed that recommendations in the future will be profitable or equal the performance of the companies identified above.
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